Re­form Bank­ing Sys­tem to Deal With NPA: SC to Govt

New Delhi: The Supreme Court on Tues­day told the Modi govern­ment to over­haul its bank­ing sys­tem to pre­vent bad loans and has­ten their re­cov­ery from de­fault­ing bor­row­ers, in­stead of act­ing as if every­thing was fine, ob­serv­ing that in such a case the pub­lic sec­tor banks would not have had to write off bad loans to the ex­tent of over .₹ 1,14,000 cr.

“Don’t say that the ex­ist­ing sys­tem is work­ing fine, carry out re­forms. If it had been work­ing, this would not have hap­pened. There would not be such huge (loan) write-offs,” Chief Jus­tice of In­dia TS Thakur, sit­ting TSTHAKUR along­side Jus­tices R Banu­mathi and UU Lalit, told So­lic­i­tor Gen­eral Ran­jit Kumar. “You may set up a com­mit­tee which will de­bate how to im­prove the sys­tem.”

The CJI also took a dig at the So­lic­i­tor Gen­eral who was as­sist­ing At­tor­ney Gen­eral Mukul Ro­hatgi in the case. “I hope you stand on this will not be like the Ko­hi­noor?” The bench then sought the Fi­nance mIn­istry, the RBI and the In­dian Banks’ As­so­ci­a­tion to re­spond to is­sues framed by NGO pe­ti­tioner Cen­tre for Pub­lic in­ter­est Lit­i­ga­tion (CPIL), through lawyer Prashant Bhushan.

The SG said that the country’s bankruptcy code was be­ing changed and also more amend­ments in the law were be­ing made to en­sure that NPAs stayed un­der check. He said that a statu­tory mech­a­nism in the form of the Sar­faesi Act and the DRT also ex­isted to deal with as­sets re­cov­ery. How­ever, the CJI was un­happy with the govern­ment stand and in­sisted that the fi­nance min­istry de­bate ways and means to fur­ther im­prove the sys­tem. “Set up a com­mit­tee, de­bate how things can be im­proved. We will help you,” the CJI said.

The CJI led bench, which had ear­lier sought de­tails from the RBI about all those who had de­faulted on loans over .₹ 500 cr and above, has, how­ever, so far not made it pub­lic at the in­sis­tence of the RBI. The apex reg­u­la­tory body for banks says this will af­fect pub­lic con­fi­dence in banks and stall eco­nomic growth as it will de­ter gen­uine pro­mot­ers.

In­stead, the court is now de­bat­ing on re­fer­ring the en­tire is­sue for a big­ger de­bate to a large bench. Among the ques­tions that will be

Chief Jus­tice of In­dia

re­ferred will be whether the RBI can refuse to dis­close in­for­ma­tion about de­faulted loans, mech­a­nisms re­quired to en­sure that banks ob­tain ad­e­quate se­cu­rity for such loans to cor­po­rates.

Whether per­sonal guar­an­tees of the pro­mot­ers should be re­quired to be taken in loans given to the cor­po­rates, what safe­guards are nec­es­sary for en­sur­ing that loans are not re­struc­tured with­out good rea­sons

or re­struc­tured on fair terms? What safe­guards are nec­es­sary to en­sure that bor­row­ers do not in­dulge in bank shop­ping while seek­ing loans and to en­sure that fresh loans are not given with­out good rea­sons to those com­pa­nies which had al­ready de­faulted in their re­pay­ment of loans?

What safe­guards are nec­es­sary for en­sur­ing that there is no ar­bi­trary set­tle­ment/write off of loans?